People buy less general insurance because they don’t know where to buy it from, and because the products don’t often meet their needs
The International Monetary Fund (IMF) in their April 2018 report identified low insurance penetration as a major concern. This is especially true in a country like India, where a huge majority of the population lives in rural areas. In fact, general insurance penetration in India is quite low, with rates being at only 0.7% of the GDP. This is in contrast to the global average of 2.8%.
One of the reasons for low penetration could be the common notion that general insurance claims are not often paid on time. However, the point is just a myth, since most claims are paid and the claims settlement ratio is actually quite high. Here we list some points that might be responsible.
Unequal Distribution
One issue with general insurance is the unequal distribution of services. Most general insurance companies, especially private ones, have 96% of their offices in tier 1 cities. The access to general insurance outside these cities is pretty low. This is mostly because it is nonviable for these companies to set up a presence in smaller towns. This could change if distributors were allowed to earn more when they step outside large cities.
Fewer Product Innovations
General insurance covers many possible risks, but there are a lot of gaps in this coverage. For example, most health insurance policy only cover in-patient treatments, and even there, many dental treatments are uninsured, along with non-allopathic treatments, like homeopathy, which are popular in India. Even under rural insurance policies, certain type of cash crops are not covered. Thus, a lot of product innovation is needed in the market.
Pricing Issues
Another issue is that general insurers tend to focus on growing sales rather than writing a sustainable business. What’s more, they do so at the cost of distorting the pricing for individuals. You see, many general insurance policies like health, personal accident, etc. are sold both as group and as individual policies.
The problem is that insurers increase the price for individual policies, while reducing the price for group policies, since that drives sales. However, this is counter-productive to sustainability, since group policies are often bought by employers for their employees, and they can afford to pay a little extra, while individuals would be more price sensitive.
Lack of Mandate
Except for third party motor insurance, purchasing insurance is not mandatory for anyone in India. While this is very democratic, people don’t realize the importance of insurance, and the risks it covers them from. Therefore, making certain insurance covers, like those for property, catastrophe, and certain liabilities, mandatory in India might be a good idea.
Both life and general insurance play a role in managing the risk of financial loss. Therefore, buying high-quality insurance will let people live longer, and with more financial security.
Related Article:
Uninsured and Underinsured: An Issue That Needs Addressing
Reasons Why Insurance Penetration is Low in Women